6 Aversions to Hiring a Wealth Manager
Below are six common reasons why investors may delay working with a wealth manager:
(1) Uncertain They Have Enough
This belief is quite prevalent even among multi-millionaires. Once your investable assets are >$200K you should consider working with a wealth manager. The benefits in terms of long-term performance, risk management, discipline and convenience often outweigh the cost of a management fee.
(2) Avoidant
Like the person who hasn’t visited the doctor in a long-time and doesn’t wish to know what is potentially problematic with their health, some investors have avoided taking on a wealth manager out of an aversion to digging into their portfolio. They might be pleasantly surprised at how straightforward the initial portfolio tune up can be. Once their risk tolerance has been assessed it becomes much simpler to identify which parts of the current portfolio need to be revised and the wealth manager can educate them on their choices.
(3) In DIY Phase of Wealth Journey
Almost all of us start out as DIY investors either actively managing our portfolio or simply squirreling away into our default retirement plan. Sometimes we stay DIY investors for too long. We make mistakes. Bad investment choices, attempts to time getting in and out of the market, switching funds at the wrong time, reacting emotionally to market volatility or simply not realizing there are techniques to limiting equity downside risks. At some point we realize it makes sense to consider paying for experience and convenience. This can be done in stages, testing out a wealth manager over a number of years with a fraction of your portfolio. This is a great way to ease into working with a manager and establishing comfort over time.
(4) Money Market Investors with Strong Risk Aversions
Those investors with large nest eggs in ultra conservative instruments (CDs, money market) may have the perception that a wealth manager will nudge them to take risk they don’t wish to take. It’s true that some clients are too conservative; however, equity risk exposure can still be managed through a variety of techniques such as defensive portfolios, hedged strategies and defined outcome products. If you’re not familiar with these, it’s worth having a conversation with a wealth advisor to see if any of these make sense for your portfolio.
(5) Prior Frustrations with Young Financial Advisors
A common experience among the 50+ crowd is calling into the wealth manager to enquire about their retirement portfolio, bouncing around the phone menu and ending up speaking to a 20-something advisor who hasn’t seen more than a fraction of a single bull cycle. The thought of taking on yet another advisor and ultimately having a similar experience can be a source of reluctance.
(6) Choice Paralysis
There are a number of categories of wealth managers and numerous potential choices within each category:
- Wealth advisors within large retirement asset gatherers
- Local RIAs
- Hybrid RIAs
- Family offices with bundled wealth management, tax prep, bill pay and estate planning
- Fee-only advisors
Knowing which wealth manager to choose and why can be a challenge. A great starting point is going through a risk tolerance and asset allocation analysis with a wealth manager. This is similar to an annual checkup with your doctor.
Rules-Based Wealth Management
We can’t tell you which wealth manager makes sense for you. However, we can share that Trefis has partnered with Empirical Asset Management because of their experience, knowledge, accessibility and Rules-Based wealth management philosophy. Empirical’s CIO Glenn Caldicott has been managing wealth for 30+ years through four bear markets and four bull markets. Their Rules-Based approach is a great complement to Trefis systematic portfolio strategies which are available to investors through Empirical. They have a 9 question risk tolerance questionnaire that will help you to understand which strategies make sense for you. If you’re interested in learning more about Trefis strategies at Empirical or having Empirical do a risk tolerance and asset allocation analysis start here.
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